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Chris Bryant: In that case, does the hon. Gentleman support the idea, already advocated by several Labour Members, of imposing a ceiling on interest rates, or at least a provision whereby the Government could, via a statutory instrument at a future date, allow for such a ceiling?

Mr. O'Brien: The hon. Gentleman raises a point that has already been mentioned in interventions. I heard what the Minister said as well as he did. I am not ducking the issue, but I will come on to the point later, if he will bear with me.

I ask the Minister now how he will carry out his duty of allowing proper scrutiny of his proposals. To avoid any suspicion of headline grabbing in advance of an anticipated general election, will the Office of Fair Trading guidance, at least in draft, be published and made available ahead of the Committee stage, starting in the usual 10 to 14 days' time? After all, that would be fair in the current context. Any answer in the negative, I would submit, would be unfair to those seeking to scrutinise the Government's proposals both here and outside this place. For the Minister to withhold that guidance on the definition of "unfair" would be a sharp irony, as well as unacceptable. I hope that, as a courtesy to the House and a fair service to all interested parties outside the House, a draft will be made available before the Committee stage starts. That will be crucial to understanding the potential operation of the Bill.

Part of the Bill deals with action against rogue traders. Again, like the National Consumer Council and NACAB, I broadly welcome the tougher licensing system introduced in the clauses. They will give the Office of Fair Trading more powers to set more detailed and relevant tests on who is fit to hold a consumer credit licence, to request more information from consumer credit businesses over fitness and practice issues, to place more detailed restrictions on the activities of licence holders, to impose requirements on particular licence holders where the OFT is dissatisfied with their conduct, and to impose civil penalties on licence holders in breach of the requirements.

In theory those powers are, if exercised with restraint and proportionality, sensible. However, there is a significant caveat, given the Government's record on expanding bureaucracy and red tape, and their tick-box approach, which experience shows is least likely to work, because it is no substitute for the judgment and responsibilities of practitioners. Clause 38 confers powers on the OFT to impose requirements on licensees and give the regulator potentially greater flexibility. The only present option is simply to kill or to keep a licence held by a firm that may have 100 or more branches. Businesses and consumers alike stand to benefit from the OFT's being able to require a single offending branch of a firm to address the matter with which it is dissatisfied, rather than having to choose between either ignoring isolated instances of bad practice or the draconian option of shutting every branch of the firm.

The Government have resisted—I believe rightly—the temptation to make high interest rates unlawful per se, and they have not applied interest rate ceilings. That
 
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deals with the intervention of the hon. Member for Rhondda (Chris Bryant). However, in an interview broadcast on the radio on the Sunday before Christmas, the Minister said that such provisions would be unworkable. I am concerned because in the same interview he said—he repeated it this afternoon—that the Government would keep their fundamental policy approach under review, not least through pilot research being conducted in Birmingham and Glasgow. He said that if the power to introduce an interest rate ceiling were introduced, such a power could be introduced by the simple expedient of secondary legislation under the Bill. After what I have heard today, that may have been brought up to date. I agree that it would be unacceptable to confer such a power through secondary legislation, and I hope that the Minister will reconfirm that it would be done through primary legislation.

Mr. Battle: If there were a power in the Bill that allowed the Minister to introduce capping on rates and the charges that often compound the interest and take people from being £100 in debt to being £1,000 in debt, the Minister would not have to use it, but its existence would act as a signal to the markets that if they did not act responsibly, the Minister could act. Would that not be worth while?

Mr. O'Brien: I am grateful to the right hon. Gentleman. It is an interesting idea to have powers in a Bill to act as a deterrent against their ever being used—and from time to time, that is how it works out in practice. I accept that point.

It is not my position to make the Government's argument, but the Bill contains an unfairness test. As I understand the right hon. Gentleman's argument, he wants a new policy approach after all the research that the DTI has commissioned, especially on international best practice, has been gathered. I would insist that any new policy approach should be in the form of primary legislation. Otherwise it would exist only as a threat, rather than something that we could properly consider and scrutinise, as is the duty of this House.

Angela Eagle: Will the hon. Gentleman give way?

Mr. O'Brien: I will, although the hon. Lady has already had a good crack at intervening.

Angela Eagle: I thank the hon. Gentleman for having the grace to give way again. Does he think that compounding interest rates, which my right hon. Friend the Member for Leeds, West (Mr. Battle) mentioned, and which causes major distress, as many of us know from our surgeries, could ever be fair?

Mr. O'Brien: I, too, have heard from many constituents who have suffered from that phenomenon. I suggest that the unfairness test would deal with such problems, but it is really up to the Minister to give a proper response to the hon. Lady. As I understand the Bill's intent, and therefore the basis on which the Opposition has assessed and scrutinised it, the unfairness test is intended to encompass the essence of what is fair or not fair about any compounding, or some
 
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compounding. That is not yet determined. However, the hon. Lady makes a fair point about the Bill: it lacks detail, which is unhelpful at this stage.

Clauses 44 to 51 provide new rights to receive information from lenders on the status of their borrowing at points throughout the lifetime of a loan. I am glad that the provisions cover the lifetime of the loan, because I have always regarded that as very important. The information includes annual statements for fixed-sum credit for a duration of more than one year; warnings on the consequences of minimum payments to credit cards; notice of arrears, accompanied by new advice sheets; notice of any sums charged as a result of defaulting on a loan; and notice of contractual interest charged after a court judgment has been made on a loan. Such regular information bulletins will hep to address the point about compounding that the hon. Member for Wallasey (Angela Eagle) rightly raised.

Notwithstanding the concern expressed by some in the consumer credit industry that sending formal arrears information notices to customers within 14 days of a missed payment may distress them, in our view NACAB is correct in its assessment that

"the provision of information to borrowers about events affecting the status of their loans is an essential safeguard against growing indebtedness".

However, let us be realistic. It is not good enough for the Government to insist that borrowers, especially low-income borrowers, receive a deluge of letters just so that the lender can prove its track record and leave a paper audit trail for the regulator, because people in difficulty often just put such letters in a drawer. People put their heads in the sand, and I have never known of any legislation capable of preventing that.

It is important to recognise that the relationship exists throughout the lifetime of the loan, not just at the time of the initial transaction. Other approaches can include the sympathetic phone call to help someone come to an arrangement, however small the regular amount and however long the period. That area is vital for low-income borrowers. I accept, however, that some low-income borrowers do not have a telephone—we need to root our proposals in the reality faced by many of these people.

As NACAB also points out, the proposed legislation does not cover extending the right to a statement to fixed loans lasting less than one year. I know that my hon. Friend the Member for Tewkesbury intends to pursue that point in Committee. As shorter loans are often charged at even higher interest rates and are also often "rolled over", a similar statement for fixed-term loans lasting less than a year might also benefit consumers. Such a statement might be issued at the mid-point in the loan.

In summary, these clauses demand of the lender a real commitment to a continuing relationship with the consumer beyond the initial transaction, which is best practice operated by many in the industry already—not least because it is in their interests to stay close to their customers at all times in all circumstances. The proposal extends the principles of best practice. But let us not forget that all too often, the real difficulty is persuading the borrower to contact the lender early enough when difficulties loom, so that a manageable and fair arrangement can be worked out.
 
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The final principal measure in the Bill is a new route to consumer redress through the application of the financial services ombudsman scheme to consumer credit licensees, as outlined in clauses 59 to 61. The aspiration here is to provide more accessible and lower-cost dispute resolution processes. Although the measure has our tentative support, there is a lack of detail in the Bill, and we will want to explore the detail of the proposals carefully in Committee.

One reason for our caution is the last dispute resolution procedure introduced by the Government on 1 October 2004, which applies generally to employers and employees. In that instance, the Government claimed that the new dispute resolution regulations amounted to a simple three-step procedure. In fact it is a 13-step procedure—a number that is clearly unlucky for the Department of Trade and Industry. The regulations were so complicated that the explanatory guide produced by the Department turned out to be incorrect and had to be reprinted at a cost of £200,000—another example of the waste that may mean that there is not enough money to continue to fund citizens advice bureaux, as the hon. Member for Ochil (Mr. O'Neill) mentioned.

The CBI has also expressed doubts that the financial ombudsman scheme

"has the skills, expertise, experience, resources or the appropriate charging structure to be able effectively to take on complaints relating to a whole range of smaller transactions than it currently covers."

We will need to look carefully at the charging regime for smaller transactions.

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